Date: 3/30/2009Written By: Business Roundtable and the US Council Foundation

As Congress and the administration work to put America’s economy back on a path for growth and put Americans back to work, it is important for our nation’s academic and policy leaders to appreciate the historic role of America’s multinational companies as major employers and drivers of U.S. economic growth.

The worldwide operations of U.S. multinational companies are highly concentrated in America in their U.S. parents, not abroad in their foreign affiliates.

Employment: U.S. parent companies account for 69.6 percent of worldwide employment of U.S. multinationals — 21.7 million U.S. workers versus 9.5 million at affiliates. This translates into a ratio of almost 2.3 U.S. employees for every one affiliate employee.

Against a backdrop of the current economic crisis, U.S. multinational companies have never been more vitally important to the future of U.S. economic growth and job creation. I hope you will find this paper of interest as you consider the policies that will shape our economy for years to come. I’m available at your convenience if you have any questions, or would like to discuss further.

Washington, D.C. – A study released today confirms that — contrary to public belief — U.S. multinationals strengthen the domestic economy by enhancing America’s productivity, leading to job creation and increased compensation for our workers. The study, “How U.S. Multinational Companies Strengthen the U.S. Economy,” challenges recent concerns regarding the balance of these corporations’ domestic and international activities.

“The notion that U.S. multinationals have ‘abandoned’ our country by shipping the majority of their operations overseas is not supported by the facts,” said author Matthew J. Slaughter, associate dean of the MBA program and professor of International Economics at the Tuck School of Business at Dartmouth. “We live in a society that is truly interconnected on a global scale. Consumers demand access to goods and services from all over the world. Therefore, the success of these companies increasingly depends on their engagement in the global marketplace. Their leaders must make strategic investment and employment decisions from an international perspective, linking all locations to take advantage of the dynamic world market.”

According to Slaughter, U.S. parent companies account for nearly 25 percent of all private-sector output (measured in terms of GDP), or more than $2.5 trillion.

“U.S. multinational companies are, first and foremost, American companies,” noted Slaughter. “These companies strengthen the American economy through a combination of their domestic activity and their international engagement, which together stimulate capital investment, research and development, and trade. These productivity-enhancing activities, in turn, lead to more job opportunities and to larger average paychecks for millions of American workers.”

Slaughter contends that the central role U.S. multinational companies play in underpinning U.S. economic growth and jobs creation is even more important today as the United States addresses challenges presented by the current economic environment.

“Strong U.S. multinational companies that are able to compete effectively in foreign markets will be better positioned to help lead America out of recession,” said Slaughter. “By preserving and enhancing the health, vitality and competitiveness of their worldwide operations, U.S. multinational companies can help stem job losses in the United States and, eventually, hire more American workers.”

Additionally, the study found that U.S. multinationals maintain a large presence in America, both relative to the overall domestic economy and relative to the size of foreign affiliates. The worldwide operations of U.S. multinational companies are highly concentrated in America, not abroad in their foreign affiliates. Domestic parent companies accounted for nearly 70 percent of worldwide employment of U.S multinationals, that is, almost 22 million U.S. workers versus 9.5 million at affiliates. This translates into a ratio of nearly 2.3 U.S. employees for every one affiliate employee and represents about 19 percent of total private-sector payroll employment.

Slaughter argues that this global connection has allowed U.S. multinationals to tap into diverse international markets, which have experienced faster growth throughout the past generation than the United States. This foreign-affiliate activity, he believes, helps drive increased domestic employment, worker compensation and capital investments.

“Being globally engaged requires U.S. multinationals to establish operations abroad and expand and integrate these foreign activities with their U.S. parent activities,” said Slaughter. “The idea that this international expansion tends to ‘hollow out’ domestic operations is incorrect. Rather, the success of American operations of these companies depends on success abroad and vice versa. Ultimately, it’s the linkage and right balance of domestic and international operations that increases productivity of these corporations and promotes a higher standard of living for all Americans.”

Foreign affiliates are located primarily in high-income countries that in many ways have economic structures similar to the U.S., not in low-income countries. Affiliates in high-income countries accounted for 79 percent of total affiliate output.

This study was commissioned by Business Roundtable, an association of America’s leading CEOs, and the United States Council Foundation, the educational arm of United States Council for International Business (USCIB).

Business Roundtable is an association of chief executive officers of leading U.S. companies with more than $5 trillion in annual revenues and nearly 10 million employees. Member companies comprise nearly a third of the total value of the U.S. stock markets and pay nearly half of all corporate income taxes paid to the federal government. Annually, they return $133 billion in dividends to shareholders and the economy.

Business Roundtable companies give more than $7 billion a year in combined charitable contributions, representing nearly 60 percent of total corporate giving. They are technology innovation leaders, with more than $70 billion in annual research and development spending – more thana third of the total private R&D spending in the U.S.

USCIB promotes international engagement and prudent regulation in support of open markets, competitiveness and innovation, sustainable development and corporate responsibility. Its members include top U.S.-based global companies and professional services firms from every sector of our economy, with operations in every region of the world. With a unique global network encompassing leading international business organizations, USCIB provides business views to policy makers and regulatory authorities worldwide, and works to facilitate international trade and investment. More information is available at www.uscib.org.